Jamaica Gleaner - Dairy industry calls for help - Friday

Dairy industry calls for help
published: Friday | November 28, 2003

By Denise Williams, Staff Reporter

ON THE heels of the proposed protection to be given to the local cement manufacturer, the dairy industry in Jamaica has again appealed for attention from Government.

After ten years of liberalisation, milk production has dropped by 90 per cent, as the local industry cannot compete with cheap imports. The call for dairy farmers to be protected against heavily subsidised importers is not a new one. But with the latest thrust to save local industry from the ravages of globalization, Dr. Paul Jennings, CEO of the Dairy Board asks, "Now the Government is in the mood to protect the local cement industry, why not dairy?" The Data Bank & Evaluation Division of the Ministry of Agriculture reveals that currently, there are only 753 dairy farmers left in Jamaica, although Dr. Jennings believes that the figure is a bit higher.

Nonetheless, competition has hurt the sector and this hurt has been ignored. This continues at Jamaica's peril. Dr. Jennings explains the bottom line as simply this: for every new farmer that is attracted to dairy, he in turn employs two additional persons. The right policies will make dairy farming attractive and profitable and, the Dairy Board believes, able to bring in 3,000 new farmers. Consequently, within 10 years, there could be at least 9,000 individuals working in dairy. In dollar terms, for every J$1.00 generated at the farm gate there is a multiplier of J$3.00 contributed at the national level.

States Dr. Jennings, "If the right policy is in place, in 5 years the industry could regain 1992 levels of production and in 10 years, 75 million litres of milk could be produced. Currently, the dairy farmer earns a maximum of J$20 per litre. At 75 million litres, the dairy farmers would earn J$1.5 billion but this would multiply into a J$4.5 billion contribution to national Gross Domestic Product. Farmers and their families would spend money for goods and services and the providers of goods and services would spend money, and so on and so on. Thus, the money turns over. Affirmed Dr. Jennings, "There are tremendous macroeconomic benefits of rural development."

But these figures are not new. The concerns are not new. The request for Government attention is not new. Recalling past efforts, Dr. Jennings stated, "Seven to eight years ago, an Anti-Dumping Committee did not have authority to impose duties but could only make recommendations. The Commission recommended a 137 per cent tariff on imported whole milk powder as importers from Europe and the United States were getting a 70 per cent subsidy from their governments. But this was not implemented largely because of concerns of consumer prices. It would have made it difficult for most people to buy. However, the Government did add on an extra 20 percent stamp duty to the existing 30 per cent duty importers of whole milk paid."

This was a Band-Aid on a gaping wound. When the dairy trade was liberalised in 1992, the industry produced 38.8 million litres of milk. By 2002, dairy production plummeted by 90 per cent to 20.4 million litres.

Stated Dr. Jennings, "There is a crisis." Perhaps the crisis is really one of unconcern. Farming is not a glamorous career, and it is hard to milk a cow in an Armani suit. But, according to Dr. Jennings, there is hope. The industry can be saved.

In collaboration with the Dairy Federation, the Dairy Board has prepared recommendations that, if implemented, would save the dairy industry. While, the industry has not been aggressively protected because of concerns that prices would rise above the consumer's pocket, Dr. Jennings reveals that importers enjoy huge margins that allow for the implementation of tariffs and quotas that would not negatively impact the consumers.

Of course, the importers would not experience the high level of profits, should the Dairy Board's recommendation be implemented. For example, on the world market, milk power sells for US$1,600.00 per metric tonne. That works out to US$1.60 (J$96.00) per kilogram.

At your friendly neighbourhood supermarket, milk powder sells for J$30-40 for 80 grams. Note that one kilogram equals 1,000 grams. Thus based on Financial Gleaner's calculations: J$96/1000=J$.09680 grams=J$7.68. We have, of course, ignored marketing and packaging costs. But there is a 50 per cent duty on imported milk powder, and so this translates to J$7.681.50=J$11.52.

States Dr. Jennings, "Looking at fresh milk, the most a dairy farmer can receive is J$20 per litre, but the retail price is around J$60 per litre. And the mark ups on cheese is equally atrocious. Therefore, Government's policy of assuring cheap food by giving concessions to traders doesn't work out for the poor." Some of the recommendations that the Dairy Board and the Dairy Federation propose are as follows.

The local School Feeding Programme, given enrolment levels of 540,000 students in the public system, potentially represents a market for 21 million litres per year. Over the next decade, the Government should target the phased expansion of its School Milk Programme to absorb this volume from local dairy farmers.

Link the acceptance of gifts of milk powder to the number of beneficiaries of the Food Stamps Programme immediately. At 240,000 persons on Food Stamps and ensuring 100 millilitres per person per day, donations above 500 tonnes per year seem unjustified. (The recent massive donation of 4,500 tonnes to Food for the Poor poses the threat of terminal injury to the local dairy farming sector).

Specifically targeting milk powder imports, which directly pose a threat to the development of the local dairy sector, a Tariff Rate Quota system should be implemented. A ceiling of 70 per cent of average imports for the last three years should be set. Manufacturers would enjoy zero duty on this quota, but 100 per cent duty (World Trade Organisation agreed bound rate) on imports above this quota. Applying the Tariff Rate Quota proposed would yield revenues of approximately US$4.7 million if current levels of imports (7,917 metric tones in the 2000-2002 period) are sustained. In 2000, the Government collected US$2.7 million on manufacturing imports.

The Dairy Board proposes a flat rate of 50 per cent on all imported dairy products. All major dairy products from U.S. and Europe are basically dumped products because of the heavy subsidies given by their governments. The wide range of duties that Jamaica assesses is a nightmare for Customs. Currently, duties range from 0-75 per cent.